Chris Berg – Chris Berg

Changes to auctions are just selling everyone short

With Peyman Khezr. Published in the Herald Sun, 27 November 2025

The Allan government’s proposed changes to house auctions won’t make things easier for home buyers. In fact, they are likely to make things worse, pushing sales into opaque private markets rather than public auctions.

The plan involves requiring sellers to publish a reserve price seven days before the auction. On the surface, this sounds like a victory for transparency. No more guessing games. No more “price guides” with a tenuous resemblance to the actual reserve price.

But it is driven by a very serious misunderstanding of why auctions exist in the first place.

The market for houses is not like the market for groceries or cars. Every property is unique and the value of a unique asset is inherently uncertain. It is hard to estimate what exactly a house is worth until you put it to auction. Auctions and buyer advocates will tell you that they are regularly surprised by how a house fares at auction.

That’s because an auction is itself the mechanism to determine what the house is worth. We discover the value of a house during the auction, not before it. It follows the seller (at least) the depth of demand on the day. It allows buyers to reveal what they are actually willing to pay.

By forcing sellers to commit to a reserve price well before the hammer falls, the government is asking vendors to predict the demand for the house on the day of the auction. This imposes a significant risk for sellers — a risk that they are going to have to compensate for.

Consider the two scenarios that will play out under these new rules.

In the first scenario, the seller, terrified of setting their primary asset for less than it’s worth, over-estimates the value of their house and sets the reserve too high. So the auction passes in and the property sits on the market.

In this scenario, the “honesty” of the new regime helps nobody. This is costly for the seller, who has wasted thousands on a marketing campaign but it’s also pretty unsatisfactory for the buyer, who spent all their energy and enthusiasm on what turned out to be a non-event.

In the second scenario, the seller underestimates the value. They set a reserve that looks attractive. But because the property now appears competitive, the market takes off. The bidding soars well past that reserve.

This is a better scenario for the seller but hardly solves the problem of buyer frustration. In fact, it replicates the exact feeling of underquoting that the policy is designed to stamp out.

We are going to end up with a crowd of disappointed buyers who thought they had a chance at the reserve price, only to be blown out of the water by market reality. The disappointment will remain, but it will now come with the government’s seal of approval.

There is a reason it is hard to find international examples where sellers are forced to publicly announce a reserve price in this manner. Other jurisdictions understand that mandating certainty in an uncertain market is a fool’s errand.

If you make auctions economically risky for vendors, they will simply stop using them.

We could well see a mass exodus from the public auction system toward private negotiations. If sellers cannot test the market openly without locking themselves into a number, they will test it privately. There will move into “expressions of interest” or private sales.

This would be a disaster for transparency. The public auction, for all its faults, is the most transparent way to sell a property.

Buyers can see their competition. They can see the bids.

By contrast, private negotiations are opaque. They happen behind closed doors. Private negotiations are far more prone to manipulation than a street auction.

By fiddling with auction rules, the government risks driving the market into the shadows, where information asymmetry is even worse.

Ultimately, tinkering with auction rules misses the broader point. The reason underquoting and auction anxiety are such potent political issues is not because the rules of the game are unfair, but because the stakes are terrifyingly high. That anxiety stems from Victoria’s incredibly high house prices, not the specifics of the auction process.

The emotional toll of the property search is real.

But legislating for pre-auction honesty by forcing vendors to guess the price of their home won’t move prices, and it won’t lower stress. It will just change the shape of the disappointment.

The RBA is why your credit card surcharge fees are so high

Published in the Australian Financial Review, 20 November 2025. Written with Julian Morris.

The Reserve Bank’s position on payment system fees is a mess.

As Commonwealth Bank chief executive Matt Comyn told parliament this week, the way the RBA regulates payment system fees unbalances the competitive dynamic between banks, credit card networks and the global tech players that now also offer payment services. The domestic banks feel that they’re being penalised while international players are left alone.

But competitive unfairness is the virtually unavoidable result of the RBA’s regulatory philosophy. For over 20 years, the central bank has been trying to micromanage how merchants and banks charge each other and consumers for access to credit and debit card payments. And it has found itself playing a constant game of whack-a-mole with an evolving payment system while trying to clean up the unintended consequences of its own regulatory choices.

The clearest example of the mess created by the RBA’s payment system price controls is its proposed reforms to credit and debit surcharges.

Anthony Albanese has been running a political campaign against excessive card surcharges imposed by merchants. On social media last year he asked why a flat white should cost $5 with cash but $5.10 with a card.

It’s a fair question – but one which should have been directed not at voters but at the RBA, which since 2003 has prohibited the card networks (Visa and MasterCard) from imposing their own ban on card surcharges.

So now the RBA proposes to remove its prohibition on the network-imposed “no-surcharge” rules.

This is good. But it is hard to give the RBA credit for resolving a problem of its own making. The no-surcharge prohibition should go down as a case study of regulatory mismanagement.

The justifications the RBA gave for its prohibition are absurd in retrospect. Twenty years ago the RBA argued that no-surcharge rules “deny merchants the freedom to set their own prices” for card use. It now admits its goal back then was to tilt the competitive balance against cards – which were increasingly popular – and towards cash.

Unfortunately, though, the RBA now wants to double down on another price control: that on card interchange fees. Interchange fees are retained by the cardholder’s bank each time a card transaction is processed. Like the no-surcharge rule, since 2003 the RBA has imposed price controls on these fees.

It has set these controls by benchmarking the actual costs (well, “eligible” costs, with the eligibility of costs determined by the RBA) of interchange, such as funding, settlement, and fraud protection. Now the central bank wants to impose simpler – and much harsher – price caps.

The interchange fee regulation is just as misconceived as its contemporaneous no-surcharge rule. The RBA has itself noted that annual card fees rose and card rewards fell once the rules came in. There is little evidence that merchants passed through any of their savings.

Interchange fees aren’t arbitrary or exploitative. They are the mechanism by which payment networks balance the interests of merchants and consumers.

The keyword there is “balance”. Payment networks are multisided markets that balance the interests of the different “sides” – merchants, consumers, banks – by setting fees to maximise system value. Among other things, interchange fees fund rewards, insurance and other card benefits. All of these are there to incentivise consumers to use their cards.

To be fair, in 2003 the economic study of multisided markets was still maturing. So perhaps the turn-of-the-century RBA can be forgiven for not fully understanding the implications of this complex economic structure.

But ignorance is no longer acceptable. One of the pioneers of multisided market economics, Jean Tirole, has a Nobel Prize. And we can see that the digital economy is all about multisided markets.

The RBA doesn’t acknowledge that the function of payment networks is to maximise the value of the system.

Fees are not a bug, they are a feature. They must be high enough to sustain investment in innovation and consumer benefits, but low enough that merchants continue to accept cards. It is a balancing act, refined through constant competitive pressure and trial and error. Regulators cannot replicate this by decree.

From Diocletian’s edict on maximum prices in the Roman Empire to modern rent controls, the result has always been less investment, lower quality, and unintended harm to the very people regulators purport to help.

The Minns AI disaster

Published in the Spectator Australia, 14 August 2025

Last week, with almost no fanfare, the Minns government introduced legislation to regulate the use of artificial intelligence in the workplace.

This would be one of Australia’s first AI laws. Unfortunately, it is a lesson about how laws on frontier technology can sound reasonable but be unworkable and counterproductive in practice. The bill is a recklessly broad bid for union control over workplaces, and, if passed, would be a serious brake on business productivity growth in New South Wales.

The bill is a revised version of the workers compensation bill stalled in the upper house. Unlike the earlier bill it also creates a new health and safety duty for employers that use “digital work systems” to ensure that the way these tools allocate or monitor work does not create health and safety risks.

The idea is to prevent digital systems from being used to push workers into unreasonable workloads, to prevent businesses from imposing excessive worker surveillance, and to provide protection from discrimination. Union officials will be empowered to inspect the digital work systems if they suspect a violation.

You might think all of this is fair: the idea of being digitally managed and remotely monitored by our employers is pretty dystopian. But the bill is wildly over-drafted, and would give unions power to interfere with almost every aspect of the workplace.

On suspicion that a computer is “unreasonably” being used to allocate, coordinate, or monitor work, union inspectors would be able to access and inspect the software platforms and data that power every organisation.

The bill defines a “digital work system” as an “algorithm, artificial intelligence, automation, online platform or software”. This definition reads like the government is just throwing everything at the wall to see what sticks. It is redundant, for one. Artificial intelligence, automation, online platforms, and software are all made of algorithms.

But more importantly, this definition covers basically any way a business uses computers for work allocation. Everything from Microsoft Teams to Slack would fall under this umbrella. Email is a digital work system – so routine task allocation through a calendar invite could be grounds for union inspection if it is deemed “unreasonable”.

And this bill will present a serious disincentive to use modern AI platforms like ChatGPT in business. Explaining why a prompt returned one output and not another output is an unsolved problem in AI research. Any use of these AI models for management would be begging for union scrutiny under this new regime.

Businesses that don’t want to hand unions leverage over their basic operations will either sever the digital work allocation systems from other systems, or avoid using them all together.

That may, of course, be the goal. Workplace law already targets psychosocial risks like excessive workloads and demands. The NSW Workplace Surveillance Act already regulates worker monitoring, and discrimination is the subject of a vast array of state and Commonwealth law. The novelty of the NSW bill is that it targets digital technology directly.

At the Commonwealth level, the Albanese government is currently in the middle of an internal debate about whether to regulate AI with a big, economy-wide bill or just address problems as they come. The government is reluctant to do the former because it is desperate for the productivity boost that many economists believe AI will spark. Productivity is meant to be the theme for the second term of the Albanese government. The union movement disagrees with this strategy. They want unions to have a veto over technologies that might threaten jobs. The Minns government’s proposal goes a long way towards achieving the unions’ goal: giving unions the right to inspect digital technologies that manage work.

We’ve been here before. During the Fraser government in the 1970s there was an energetic debate about the impact of computers on work. Then as now, many feared that the emerging frontier of digital systems might cause profound disruptions to the organisation of work. The union movement wanted businesses to be forced to consult with unions before they introduced computers.

Once again, the Australian economy is suffering through a severe productivity crisis. Once again, we have a suite of technologies that promise massive productivity gains. And once again, this technological revolution is being used as a ploy for union control over business.

AI tapping copyrighted content to learn from it is not piracy

Published in the Australia Financial Review, 9 August 2025

The Productivity Commission announced this week that it was investigating how artificial intelligence models could be more easily trained on Australian copyrighted content. The backlash from our creative industry has been severe and instant.

For the past few years, AI labs have been accused in Australia and elsewhere of large-scale piracy. It is, we are told, outrageous that the PC would be providing moral cover for this theft.

But the PC is right to probe here. We need a copyright regime that reflects how AI models actually work, and our policymakers need to understand the full economic and geopolitical stakes that the AI revolution represents.

The PC’s report into data and digital technology is more modest than you would expect from the reaction of the creative industry. It is “seeking feedback about whether reforms are needed to better facilitate the use of copyrighted materials” for AI training.

But we need to be clear about how AI training actually works. AI models do not copy the content they are trained on. They learn from that content. Specifically, when they “read” a text, they identify patterns in it and relate those to patterns they’ve learnt from other texts.

If a person reads a book and learns from it – updating the weights in their own neural network – we do not accuse them of piracy. What we do when we learn, and what AI labs do when they train their models, is quite different from copying. There are some legal subtleties here.

In the US, courts have distinguished between how the models are trained and how the training data is collected.

Meta and Anthropic are accused of downloading large quantities of copyrighted books and papers from piracy websites to feed them into the training process.

If they were to do so in Australia that would probably be a violation of our copyright laws. But that doesn’t mean the training itself would necessarily be.

The PC notes that the process of AI training necessarily involves temporarily copying content onto the labs’ servers. But that proves too much. We do the same when we read anything on the internet. The moment we browse to a website, our computer downloads that website into a cache folder. But that downloading is a technical necessity, is not economically meaningful, and we don’t treat it as a violation of intellectual property.

All these subtleties around AI training were, of course, completely unforeseen by the parliaments that created our copyright regime decades ago. We don’t need to review the economic upside of AI here. It has been interesting to watch the Albanese government over the past year realise that AI could be a Hail Mary pass.

We might be able to fix our deep productivity problems without the need for tedious reform. AI presents the best chance we have right now to bring about a surge in economic growth.

But there are also real geopolitical reasons not to hamper AI development in Australia and the rest of the free world. We are in the middle of a great global technological contest around AI capability. The contest is of a larger scale and is more economically consequential than the space race of the 1950s and 1960s.

The Western world dominates AI chip development. This domination allows the US to exert a degree of influence over Chinese AI capabilities through export controls. But there is, almost certainly, a moment coming when Chinese chips will be competitive, and China will have full sovereign capability over the complete stack necessary for state-of-the-art AI.

Mark it: this will be a political shock in the West, much greater than when Deepseek R1 was released in January. When it happens, I hope it will finally pop the sense of complacency that has allowed us to indulge the idea that US tech firms are the bad guys.

Some in the creative industry would like AI training to be a matter of negotiation between rights holders and AI labs, book by book, photo by photo.

The Chinese AI labs do not share the same view. In a statement published this year, one website hosting pirated books – they call themselves “shadow-libraries” – stated that while most US firms have shied away, “Chinese firms have enthusiastically embraced our collection, apparently untroubled by its legality”.

The more data a model is trained upon, the better the model. We should not be trying to cripple AI in Australia while others rush ahead.

There are good reasons that authors and other creatives should want their work to be part of AI training sets. What writer would wish their work to be unknown by the first superintelligence?

But policymakers have a choice here. If they want Australia to shape the future of AI, they need to develop a policy regime that adapts to innovation, not a stagnant one that gives our geopolitical rivals an advantage.

Institutional acceleration

With Darcy W.E. Allen and Jason Potts. Forthcoming at Cambridge University Press.

This Element develops a theory of institutional acceleration to explain the transformation to a digital economy through a cluster of frontier technologies: artificial intelligence, blockchain, quantum computing, cryptography, and low-earth orbit infrastructure. Unlike previous technological revolutions, these technologies transform not how we organise things, but how we coordinate economic activity. The authors’ supertransition thesis explains why these digital technologies shouldn’t be understood in isolation, but rather should be understood in how they combine to create new institutional possibilities, leading to more open, complex, and global economic systems. Drawing on evolutionary economics and institutional theory, this Element shows how this evolutionary process is reshaping our institutional economic architecture. Ultimately, institutional acceleration drives greater computation and knowledge into our economic systems.

Available here

Submission to the Strategic Examination of R&D discussion paper

With Darcy W.E. Allen, Aaron M. Lane, and Jason Potts

Dear expert panel,

We are a group of academic economists and legal scholars with a specialisation in innovation and the development and adoption of frontier technology. The Strategic Examination of Research and Development discussion paper underlines that Australia’s innovation system is one of underperformance and malinvestment.

This is not the first inquiry to investigate and underline Australia’s innovation system underperformance. Each has found the same deficiencies in the system that the Expert Panel seeks to understand:

In 1995 the Industry Commission found a need to “raise the social and economic payoff from public sector R&D by achieving a wider external influence over what research gets done” and increase cost effectiveness (Industry Commission 1995)
In 2007 the Productivity Commission found that there were “major improvements” needed across the board and that research commercialisation was fraught with misaligned incentives and bureaucratic barriers (Productivity Commission 2007)
The Cutler Review found “shortcomings in the institutional framework that underpins the innovation system” (Cutler 2008).
In 2015 the Commonwealth Senate Economics References Committee inquiry into Australia’s Innovation System found that “Australia performs well in research”, but “such innovation is not developed into tangible wealth creation” (Senate Economics References Committee 2015).
In 2016 Joint Select Committee on Trade and Investment Growth Inquiry into Australia’s Future in Research and Innovation also underlined Australia’s underperformance in converting research into market ready innovation (Joint Select Committee on Trade and Investment Growth 2016)

It will be tempting for the expert panel to travel down the same paths as its predecessors. Australia’s innovation system consists of a large network of publicly funded organisations that rely on grants and subsidies as their base revenue model.

Information and markets for a circular economy

With Darcy W. E. Allen

Submission to the Productivity Commission’s interim report on Australia’s circular economy: Unlocking the opportunities.

Dear Commissioners,

We write to you as academic economists and policy experts regarding your interim report, Australia’s circular economy: Unlocking the opportunities.¹ Our argument is that the report misframes the central challenge. It treats the transition to a circular economy primarily as a problem of government intervention, overlooking the core economic problem: missing markets and the pervasive loss of information about goods over their lifecycle. Achieving a more circular economy requires enabling entrepreneurship and market creation, not more top-down control or funding.

Centrally planned economies and top-down regulatory approaches struggle or fail to effectively ‘close the loop’ on industrial by-products, largely because they lack the localised knowledge and dynamic adaptability inherent in market systems.² Waste is a problem of information loss and missing markets – that is, a lack of detailed and trusted information about potential mutually beneficial trades.

Response to CP 381 Updates to INFO225: Digital assets: Financial products and services

Response to a request to comment on an ASIC inquiry into the regulation of digital assets. With Darcy Allen. Available in PDF here.

Summary: Today we are living through a deep shift in our digital economic institutions. Crypto and digital assets might look like an isolated example, but they underpin a broader stack of innovations and technological trajectories. We have written widely about the opportunities from artificial intelligence, advanced cryptography and the low earth orbit economy. Each of these technologies are reshaping markets and spawning new industries. A diversity of digital assets will play an important role in accelerating, funding and governing their development.

In the absence of legislative clarity — or even non-binding guidance clarity — Australians will not capture these opportunities. We are not raising some hypothetical concern. While Australia debates how a regulator might interpret traditional financial law for crypto assets, other nations are establishing clear, forward-looking regulatory frameworks. The risk is not just that Australia will fall behind — we have already done that — it is that our approach is destined to become obsolete in real time.

We conclude that:

Guidance is a poor substitute for clear legislation and that ASIC should use their position to advocate for timely, clear legislation.
There are fundamental limits on regulatory enforcement in a permissionless, decentralised, global and open economy.
Trying to squeeze digital assets into existing regulatory frameworks distorts the economy and incentivises regulatory arbitrage.
Investors in digital assets have specific needs that have not been contemplated by current practices under the Corporations Act.

Donald Trump is right. Australia has been free-riding on US tech

Published in the Australian Financial Review, 25 February 2025

Over the weekend the Trump administration launched what appears to be a devastating blow against large swathes of the Albanese government’s policy agenda.

Under the heading “Prevent the Unfair Exploitation of American Innovation”, a presidential memorandum declares that it will retaliate with tariffs against countries that penalise US technology companies with taxes, fines, regulations or adverse policies.

This is a problem because penalising American companies has become the bedrock of Australia’s technology policy.

Already last week the Albanese government pre-emptively decided to go slow on its media bargaining code – which, in one iteration, was going to tax companies such as Google and Meta – out of fear of how Donald Trump would respond.

But that’s just the most obvious example where Australian law targets US tech firms.

The Trump policy statement would seem to capture the digital platforms competition policy (currently being developed by Treasury), the under-16-year-old social media ban (passed in an absurd hurry before Christmas), the misinformation bill (withdrawn, but likely to be revisited if there is a minority Labor government with teal support), local content requirements on streaming platforms (stalled but apparently still a government priority) and our freelancing eSafety commissioner, which has given Australia so much embarrassing international attention.

In almost every one these regulatory frameworks, firms have to be specifically named in law to be regulated, or the rules drawn so precisely that they are as good as singled out.

For instance, app stores on mobile operating systems with significant market share, as the digital competition policy would target, could only be the app stores run by Apple or Google.

Defenders of the government might argue that it is hardly Australia’s fault that all the technology infrastructure of the 21st century is American-owned and operated. It is simply a coincidence, therefore, that regulation targeting the tech sector targets US firms.

This argument rings hollow. Our heavily and indulgently regulated and taxed economy has made it incredibly difficult to build and sustain world-beating technology firms here.

Both sides of politics have been arguing for a decade about reform that might moderate our globally high corporate taxes.

Then there are the technology-specific laws – such as mandatory data retention and the encryption and access rules that give law enforcement the power to compel technology companies to give access to encrypted communications – that make it legally hazardous to build technology in Australia.

So it is a bit rich to feign confusion that the US is so entrepreneurial in technology relative to Australia when we systematically penalise firms that do well. It is Australia’s fault that young Australian technologists and entrepreneurs have to go overseas for the best job markets.

This new Trump policy is as much of a challenge to the opposition as the government.

It is underappreciated how much of the technology regulations being pushed by the government originated under the Coalition.

The eSafety commissioner began as the children’s e-safety commissioner under Tony Abbott, and was given its predictably expanded mandate under Malcolm Turnbull.

Likewise, the misinformation bill, the media bargaining code, and the digital competition changes all began their life as Morrison government initiatives.

And those policies they did not initiate, they have supported anyway. The opposition rolled over immediately on the under-16 social media ban.

Opposition Leader Peter Dutton should be careful not to remind the Republican administration of all this history. He has not made technology policy a focus of the Coalition’s campaign. So the Trump policy statement over the weekend is an opportunity.

The correct response to an “America first” international economic order is to restructure the Australian economy so that it can be competitive. We don’t even need a full DOGE to do it.

One reason these bipartisan technology regulations have been so galling is they’ve been introduced during a political stalemate on the basic things we need to do to grow the economy and increase productivity: reduce red and green tape, remove barriers to employment, cut tax rates.

Ultimately, the Trump administration is right. We have been free-riding on the American technology sector. The first thing we should do is stop penalising them. The second thing we should do is to stop penalising ourselves.

Dynamic Competition and Digital Platforms: Submission to the Australian Treasury Consultation on a New Digital Competition Regime

With Darcy W. E. Allen, Dirk Auer, Aaron M. Lane, Geoffrey A. Manne, Jason Potts, Lazar Radic

Executive Summary: The Australian Treasury’s proposed competition regime for digital platforms is flawed and should not proceed.

The policy rationale for an ex ante regime is unjustified. The Competition and Consumer Act 2010 (CCA) already provides a comprehensive framework to address concerns such as market power, unfair contract terms, and self-preferencing. The Australian Competition and Consumer Commission (ACCC) has not demonstrated any compelling reason existing competition laws are insufficient to regulate digital platforms and has not sought to enforce them against digital platforms.

The proposed regime is based on a misunderstanding of competition in the digital economy. Digital markets are characterised by dynamic competition, where innovation and technological change are the primary drivers of consumer welfare. The proposed ex ante regime, with its focus on static competition, may dampen innovation incentives and create barriers to technology diffusion, harming Australian consumers and businesses in the long run. Competition policy for digital platforms should be based on a dynamic competition approach that fosters innovation.

The proposed regulatory mechanisms are problematic. The reliance on subordinate legislation for crucial policy decisions is inappropriate, reducing parliamentary oversight. This approach lacks transparency and accountability, and may lead to unintended consequences for the digital economy.

We urge the Australian Treasury to reconsider its approach to regulating digital platforms. Instead of imposing an ex ante regime, the focus should be on enforcing existing competition laws and fostering a dynamic environment of innovation. This approach would better serve Australia’s long-term economic interests and the continued growth of the digital sector.

Available in PDF here.